Japan sets out plan to raise workers' pay, tackle overtime

TOKYO (Reuters) - Japan’s government laid out a plan on Tuesday that improves pay for contract employees but takes a soft-touch approach to reigning in the country’s notoriously long working hours.

People walk at an office building at a business district in Tokyo, Japan, February 29, 2016. REUTERS/Yuya Shino/File Photo

The plan is a crucial part of Prime Minister Shinzo Abe’s labor reforms, which he has touted as a way to narrow the wealth gap and make it easier for more women, elderly, and the young to join the workforce.

Raising pay should be a welcome boost to consumption, but reducing working hours could prove more difficult, because Japan is already short of workers in several industries.

“I support anything that will increase wages for low-income earners, because they have a higher propensity to spend,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.

“The overtime policy is a compromise, because the government was worried about making sudden changes that would shock the economy.”

Through regulatory changes from the 2000s, Japan has developed a two-track labor system. Companies can often hire non-regular or contract employees who earn less pay and benefits but do the same work as better-payed regular employees.

The government said on Tuesday it will start preparing laws that will eventually eliminate the pay gap between regular and non-regular employees doing the same work. The government plans to submit the necessary bills from next fiscal, which starts in April.

The government said it will take the additional step of shouldering the costs for workers to settle claims of unfair pay out of court.

The number of contract workers has risen to around 37 percent of the workforce, but economists say this ratio could start to come down now that the government is taking a tougher stance on contract workers’ pay.

Abe’s plan will also limit overtime to up to 100 hours a month temporarily when work is at its busiest. Currently there are no limits on overtime.

However, lawyers and activists have said this does not go far enough, because the government’s standard criteria for death by overwork, known as “karoshi,” is working 80 hours in overtime a month.

Further watering down the measures, Abe’s plan would exempt workers in construction and logistics from the overtime limits for the next five years. Both industries have been suffering from a shortage of workers.

Some economists, however, say Abe’s cautious approach to labor market reform may make some sense, because curbing overtime too much could hurt companies and workers.

“I don’t think Abe’s reforms are headed in such a bad direction,” said Hiromu Uezato, economist at Mizuho Research Institute.

“If you cut back on overtime too much, this could actually lead to lower pay for workers, which would be harmful.”